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 / Fall 2005 / Issue 40(originally published by Booz & Company)


Skoda Leaps to Market

Volkswagen’s response has been to rethink its brand definitions. The Audi, Seat, and Lamborghini brands are now known as “sporty” within the company; Volkswagen, Skoda, Bentley, and Bugatti are deemed “conservative.” The problem of growing Skoda, but not at the expense of other Volkswagen brands, has fallen to Detlef Wittig. A Wolfsburg stalwart and the first German to head Skoda, Mr. Wittig has a trim build and a moustache that make him look younger than his 62 years. His post as Skoda CEO is the culmination of a long career at Volkswagen (beginning in 1968, and including a 1975–77 stint as Volkswagen’s representative in Japan). And he was not a stranger. From 1995 to 2000, Mr. Wittig served Skoda as the head of sales and marketing; he was remembered for having said, at the 1996 launch of the Octavia, that Skoda had passed a milestone: “It is now a normal company; not excellent, but normal.”

A Skoda’s 1929 luxury car, the 860; only 49 were ever manufactured. B The hood of a 1932 Skoda prototype anticipated the future Volkswagen Beetle. C The Skoda 110 roadster, produced in 1925. D This Skoda badge appeared on the front of cars from 1925 until the early 1930s. E The Skoda Superb, circa 1937; the Superbs of that era were hand-built to the specifications of wealthy customers.

F The Skoda Trekka, an all-terrain vehicle manufactured starting in 1966 by Skoda for export to New Zealand, was offered in yellow, blue, red, and green. G The Skoda 130 RS sports car confounded Communist stereotypes by winning the 1981 European Championship for manufacturers. H-K Four contemporary Skoda models, aimed at its new global markets: (H) the Octavia, 2004; (I) Felicia, 1999; (J) Fabia, 2005; and (K) Yeti, concept car, 2005. All photographs courtesy of Skoda.

One other factor made him a likely candidate for the top position. Mr. Wittig was born in 1942 in Magdeburg, a town that was swallowed up a few years later into East Germany. If his parents had stayed in Magdeburg, Mr. Wittig would have grown up under Communist rule. This sensitivity helped him approach the Czechs as equals. “He understands the Czech mentality,” says Mladá Boleslav Mayor Kvaizar, who has worked closely with Mr. Wittig on town–company relations. “His negotiating style is open and straightforward.”

During his first year as CEO, Mr. Wittig’s work ethic and transparent manner have built up their own following in Mladá Boleslav. “He is making up for Skoda’s lost time,” says one colleague. Mr. Wittig agrees. “My heart is at Skoda,” he says. “We’ve paid off our debts. We’re ready to go. Our financial results mean we can widen our production and our market base.”

The Volkswagen brand will now migrate up-market (a declaration made with the 2004 introduction of the opulent Volkswagen Phaeton), and Skoda will seek to dominate the base of the pyramid. In effect, Volkswagen has handed Skoda the task of creating a global equivalent of the original VW Beetle, with sufficient quality and innovation to avoid being undercut by cheaper carmakers from other emerging countries. Renault, for example, has recently taken a 93 percent stake in Romania’s leading automaker, Automobile Dacia, with the intent of turning it around. “There will always be cheaper carmakers,” Mr. Wittig says. “I’m not interested in them. We have to stick to our concept. A Skoda can only be stripped down so far. We are not going to produce bloody tin boxes.”

Mr. Wittig’s target is to increase production to 600,000 vehicles over the next few years, or about 12 percent of the Volkswagen Group’s volume. One possible stumbling block is morale. Although Skoda’s directors are all German, the number of German executives has dropped from 400 in the early 1990s to 40 today — and roughly the same small number of Czech executives have been promoted to positions in the Volkswagen Group. Resentment is growing among Skoda workers at the gap between their salaries and those of people doing the same work across the border at VW plants in Wolfsburg — about $1,000 a month in the Czech Republic compared with $4,000 a month in Germany. There were mass marches and strike threats in Mladá Boleslav in April 2005. Union leaders are cautious about possible damage to Skoda, but believe continued action will build awareness. “It has to change,” says Mr. Povsik, the union head. “The gap in wages is not going to be defensible forever now that the Czech Republic has joined the E.U.”

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  1. Alfred D. Chandler Jr. and Bruce Mazlish, Leviathans: Multinational Corporations and the New Global History (Cambridge University Press, 2005): The global rise of multinational corporations, cowritten by Harvard’s eminent historian.
  2. Graeme Maxton and John Wormald, Time for a Model Change: Re-engineering the Global Automotive Industry (Cambridge University Press, 2004): A definitive overview of the changing global context.
  3. Dennis Pamlin, editor, Sustainability at the Speed of Light (World Wildlife Fund, 2002): Online book contains a powerful chapter on leapfrogging for environmental sustainability. Click here.
  4. Dave Randle, The True Story of Skoda (Sutton, 2002): Illustrated chronicle of Skoda’s history from its 1895 origins to the Octavia.
  5. Horacio Rozanski, Allen Baum, and Bradley Wolfsen, “Brand Zealots: Realizing the Full Value of Emotional Brand Loyalty,” s+b, Fourth Quarter 1999: How Volkswagen originally “leaped to market” with its Beetle. Click here.
  6. Skoda’s Web site: Includes financials, automotive history, sports sponsorship, and current models. Click here.
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